Inside the Crystal Ball: How to Successfully Make and Use Forecasts.pdf
Everybody forecasts and listens to forecasters, whether they are investors or not. Forecasting is an essential and unavoidable part our lives. Decisions about future outcomes are critical for success or failure in everything from marriage, career choices, business, and investments. No one always makes the right choices. Yet being right the majority of the time, especially for investors and businesses, is everyone's goal.This book is about improving almost anyone's ability to make more correct decisions. The book: Provides sobering evidence on just how hard it is to successfully forecast the economyShowcases how and why economists succeed and sometimes fail to correctly forecast the futureExamines what has made economic forecasters relatively successful and others not so successful in order to learn from past mistakesChief UBS US Economist Maury Harris is uniquely equipped to reveal how much can be learned from economists' successes and mistakes.
Acknowledgments Introduction: What You Need to Know About Forecasting Chapter 1: What Makes a Successful Forecaster? Grading Forecasters: How Many Pass? Why It's So Difficult to Be Prescient Bad Forecasters: One-Hit Wonders, Perennial Outliers and Copy Cats Success Factors: Why Some Forecasters Excel Does Experience Make Much of a Difference in Forecasting? Chapter 2: The Art and Science of Making and Using Forecasts Judgment Counts More Than Math Judging and Scoring Forecasts by Statistics Chapter 3: What Can We Learn from History? It's Never Normal Some Key Characteristics of Business Cycles National versus State Business Cycles: Does a Rising Tide Lift All Boats? U.S. Monetary Policy and the Great Depression The Great Inflation is Hard to Forget The Great Moderation: Why it's still relevant Why Was There Reduced Growth Volatility During the Great Moderation? Forecaster history: Observations from the sidelines before I became a "starter." A History of Professional Forecasters Forecasting Recessions Chapter 4: When Forecasters Get It Wrong The granddaddy of forecasting debacles: The Great Depression The Great Recession: Grandson of the granddaddy The Great Recession: Lessons Learned The productivity miracle and the "New Economy" Productivity: Lessons Learned Y2K: The disaster that wasn't The tech crash was not OK Forecasters at cyclical turning points: How to evaluate them Forecasting Recessions Forecasting Recessions: Lessons Learned Chapter 5: Can We Believe What Washington DC Tells Us? Does the U.S. Government "Cook the Books" on Economic Data Reports? To What Extent Are Government Forecasts Politically Motivated? Can You Trust the Government's Analyses of Its Policies' Benefits? The Beltway's Multiplier Mania Multiplier Effects: How Real Are They? Why Government Statistics Keep "Changing Their Mind" Living with Revisions Chapter 6: Four Gurus of Economics: Whom to Follow? Four Competing Schools of Economic Thought Minskyites: Should We Keep Listening to Them? Monetarists: Do They Deserve More Respect? Supply-Siders: Still A Role To Play? Keynesians: Are They Just Too Old-Fashioned? Chapter 7: The "New Normal": Time to Curb Your Enthusiasm? Must Forecasters Restrain Multi-Year U.S. Growth Assumptions? Supply-Side Forecasting: Labor, Capital and Productivity Are Demographics Destiny? Pivotal Productivity Projections Chapter 8: Animal Spirits: The Intangibles Behind Business Spending Animal Spirits on Main Street and Wall Street Can we base forecasts on confidence indexes? Business Confidence and Inventory Building How Do Animal Spirits Relate to Job Creation? Confidence and Capital Spending: Do They Move in Tandem? Animal Spirits and Capital Spending Chapter 9: Forecasting Fickle Consumers Making and Spending Money How do Americans make their money? Will we ever start to save more money? Why Don't Americans Save More? More wealth = less saving Do more confident consumers save less and spend more? Does Income Distribution Make A Difference For Saving & Consumer Spending? Pent Up Demand & Household Formation Chapter 10: What Will It Cost To Live in the Future? Whose Prices Are You Forecasting? Humans Cannot Live on Just "Core" Goods and Services Key Considerations in Forecasting Inflation Should We Forecast Inflation by Money Supply or Phillips Curve? Hitting Professor Phillips's Curve A statistical lesson from reviewing Phillips curve research Chapter 11: Interest Rates: Forecasters' Toughest Challenge Figuring the Fed "Federal Open Mouth Committee" What is the Fed's "reaction function"? Is the Fed often "behind the curve"? Can the Fed "talk down" interest rates? Bond Yields: How Reliable Are "Rules of Thumb"? Professor Bernanke's Expectations-Oriented Explanation of Long-Term Interest Rate Determinants Supply and Demand Models of Interest Rate Determination When will OPEC, Japan and China stop buying our bonds? What will be the legacy of QE for interest rates? What is the effect of Fed MBS Purchases on Mortgage Rates? A multiple regression approach to what matters for note and bond yields Will projected future budget deficits raise interest rates? Chapter 12: Forecasting In Troubled Times Natural Disasters: The economic cons and pros How to respond to the next terrorist attack Why Oil Price Shocks Don't Shock So Much Market Crashes: Why Investors Don't Jump from Buildings Anymore Contagion Effects: When China Catches Cold, Will the U.S. Sneeze? Chapter 13: How to Survive and Thrive in Forecasting Surviving: What to do when wrong "Hold" or "Fold"? Thriving: Ten keys to a successful career About the Author Index